Homer Alaska - Business

Companies planning the $4.5 billion Donlin Creek gold mine on the middle Kuskokwim River have launched a study of 12-inch, 325-mile natural gas pipeline to bring gas from the Cook Inlet region to the mine.

NovaGold Resources Alaska LLC President Rick Van Nieuwenhuyse said substituting gas for diesel fuel to generate electric power for the mine and possible fuel-heavy equipment used in the mining could result in as much as a 25 percent savings in total operating costs.

NovaGold is in a partnership with Barrick Gold U.S. Inc. to develop the mine. The subsurface resource owner is Calista Corp., the Alaska Native regional corporation for the area.

"A natural gas pipeline has the potential to significantly improve operating costs and reduce operating risks," Van Nieuwenhuyse said May 20.

The year-round power requirement at Donlin Creek is estimated at 127 megawatts with peak loads of 152 megawatts required.

This would require a gas supply of 8 billion to 12 billion cubic feet per year, and possibly more if gas is used to power equipment in the mine, utility engineers who are familiar with gas-to-power conversions said.

For reference, gas and electric utilities in Southcentral Alaska now use about 60 billion to 80 billion cubic feet of gas per year.

Absent a natural gas option, the plan to generate power with diesel fuel would require about 60 million gallons of fuel per year. Fuel for heavy equipment and vehicles would add about 25 million gallons annually. The total combined would be 85 million gallons of fuel shipped in yearly by barge.

The Donlin Creek Joint Venture, owned 50-50 by NovaGold and Barrick Gold, will spend $18.7 million this year in a preliminary study of feasibility of the gas pipeline.

The current plan for Donlin Creek, unless a gas pipeline is built, is to ship diesel fuel to the mine up the Kuskokwim River by barge. The plan also includes a wind energy project near the mine that would supply about 7 percent of the power.

Shipping those quantities of diesel on the river poses environmental risks as well as costs, Van Nieuwenhuyse said.

There are potential gas supply shortages in the Cook Inlet region as gas reserves in existing producing fields are depleted, but Van Nieuwenhuyse said Donlin Creek could be a major customer for producing companies and explorers, creating incentives to explore for new gas.

Oil and gas companies say there is potential for new discoveries in Southcentral Alaska but that a lack of customers, other than local utilities and a liquefied natural gas plant near Kenai, is an obstacle impeding investment in new exploration.

Absent sufficient new gas discoveries, Van Nieuwenhuyse said the mine could also help make imports of liquefied natural gas possible, at least until a gas pipeline can be built to bring North Slope gas to the region.

Donlin Creek is one the world's largest undeveloped gold deposits with a reserve base now estimated 33.6 million ounces and about 9 million ounces of additional resources that could be added to reserves, according to information NovaGold has posted on its website.

A feasibility study for the mine complete in 2009 plans a mine capable of producing about 1.5 million ounces of gold for the first 15 years, and an average of 1.3 million ounces per year over a 25-year operating life, according to the company's information.

The region has potential for additional gold discoveries, as well.

If Donlin Creek is developed, it would be one of the world's largest gold mines and would be a major employer in the Yukon-Kuskokwim region of Southwest Alaska, now one of the state's most economically depressed areas.

Even during its exploration phase, the project was a major local employer with up to 80 percent and 90 percent of workers engaged in drilling and support efforts hired from villages in the region.

The economic benefits of Donlin Creek would be felt statewide. Substantial royalties from gold production will be shared with other Alaska Native corporations around the state under terms of the 1971 Alaska Native Claims Settlement Act, which requires the landowning corporation in a resource production project to share 70 percent of royalties with other Native corporations.

Calista would join a group of Native corporations with resources projects on Native-owned lands. Under Section 7i of the Native claims act, NANA Regional Corp. of Kotzebue now shares royalties from minerals production from the Red Dog mine in Northwest Alaska; Arctic Slope Regional Corp. of Barrow shares revenues from oil and gas production from leases it owns in the Alpine oil field; Cook Inlet Region Inc. of Anchorage shares royalties from natural gas production; and Sealaska Corp. of Juneau shares revenues from timber harvesting on its lands.

Tim Bradner is a reporter for the Alaska Journal of Commerce.